Dream Finders Homes (DFH) risk factors, FY2024 10-K

Industry, Economic and Regulatory Risks

1. 01Our industry is cyclical and adverse changes in general and local economic conditions could reduce the demand for homes and, as a result, could have a material adverse effect on us
2. 02Inflation could adversely affect our business and financial results
3. 03The availability and affordability of mortgage loans, including mortgage interest rates for such loans, could also be adversely affected by a scaling back or termination of the federal government’s mortgage loan-related programs or policies
4. 04Regional factors affecting the homebuilding industry in our current markets could materially and adversely affect us
5. 05The homebuilding industry is highly competitive and, if our competitors are more successful or offer better value to our customers, our business could decline
6. 06Natural disasters, severe weather and adverse geologic conditions may increase costs, cause project delays and reduce consumer demand for housing, all of which could materially and adversely affect us
7. 07A major health and safety incident relating to our business could be costly in terms of potential liabilities and reputational damage
8. 08Our geographic concentration could materially and adversely affect us if the homebuilding industry in our current markets should decline
9. 09Difficulties with appraisal valuations in relation to the proposed sales price of our homes could force us to reduce the price of our homes for sale
10. 10If the market value of our inventory or controlled lot position declines, our profits could decrease and we may incur losses
11. 11We are subject to warranty and liability claims arising in the ordinary course of business that can be significant
12. 12Competing effectively within the mortgage banking and title service sectors may be difficult
13. 13Any limitation on, or reduction or elimination of, tax benefits associated with homeownership would have an adverse effect upon the demand for homes, which could be material to our business
14. 14Federal income tax credits currently available to certain builders of energy-efficient new homes may not be extended by future legislation
15. 15New and existing laws and regulations or other governmental actions may increase our expenses, limit the number of homes that we can build or delay completion of our projects
16. 16Changes in U.S. trade policies and retaliatory responses from other countries may significantly increase the costs or limit supplies of building materials and products used in our homes
17. 17We and our subcontractors are subject to environmental, health and safety laws and regulations, which may increase our costs, result in liabilities, limit the areas in which we can build homes and delay completion of our projects
18. 18Environmental laws and regulations relating to climate change and energy can have an adverse impact on our activities, operations and profitability and on the availability and price of certain raw materials, such as lumber, steel and concrete
19. 19Our mortgage banking and title services businesses may be adversely affected by changes in governmental regulation

Operational Risks

1. 20Our inability to successfully identify, secure and control an adequate inventory of lots at reasonable prices could adversely impact our operations
2. 21Increases in our cancellation rate could have a negative impact on our homebuilding revenues and gross margins
3. 22Our business and results of operations are dependent on the availability, skill and performance of subcontractors
4. 23A shortage of building materials or labor, or increases in materials or labor costs, could delay or increase the cost of home construction, which could materially and adversely affect us
5. 24Investors in mortgages could require that we repurchase loans or compensate them for losses stemming from mortgages we have sold
6. 25If we are unable to develop our communities successfully or within expected time-frames, our results of operations could be adversely affected
7. 26We may be unable to obtain suitable bonding for the development of our communities
8. 27We may suffer significant financial harm and loss of reputation if we do not comply, cannot comply or are alleged to have not complied with applicable laws, rules and regulations concerning our classification and compensation practices for independent contractors
9. 28Our homes are constructed by employees of subcontractors and other third parties. We do not have the ability to control what these parties pay their employees or the rules they impose on their employees
10. 29Poor relations with the residents of our communities could negatively impact sales, which could cause our revenues or results of operations to decline

Strategic and Financial Risks

1. 30Our success depends upon our ability to successfully adapt our business strategy to changing home buying patterns and trends
2. 31We cannot make any assurances that our growth or expansion strategies will be successful, and we may incur a variety of costs to engage in such strategies, including through targeted acquisitions, and the anticipated benefits may never be realized
3. 32We may not be able to complete or successfully integrate our recent acquisitions or any potential future acquisitions or experience challenges in realizing the expected benefits of each such acquisition
4. 33Our joint venture investments could be adversely affected by our lack of sole decision-making authority, our reliance on the financial condition of our joint venture partners and disputes between us and our joint venture partners
5. 34If our operations do not generate sufficient cash from operations at levels currently anticipated, we may seek additional capital in the form of debt financing. Our current indebtedness includes, and any additional indebtedness we subsequently incur may have, a floating rate of interest
6. 35Our ability to access and obtain capital in the future could be adversely affected as a result of a downgrade in any of our credit ratings
7. 36Our current financing arrangements contain, and our future financing arrangements likely will contain, restrictive covenants
8. 37Volatility in the credit and capital markets may impact our cost of capital and our ability to access necessary financing and the difficulty in obtaining sufficient capital could prevent us from acquiring lots for construction or increase costs and delays in the completion of our homes under construction
9. 38Access to financing sources may not be available on favorable terms, or at all, which could adversely affect our ability to maximize our returns

Risks Related to Our Organization and Structure

1. 39We depend on key management personnel and other experienced employees
2. 40Mr. Zalupski owns a significant amount of our stock and his interests may conflict with those of our other stockholders
3. 41Sales of shares pledged for margin loans or prepaid variable forward sales contracts by our directors and officers could cause our stock price to decrease
4. 42Certain of our directors have significant duties with, and spend significant time serving, entities that may compete with us in seeking acquisitions and business opportunities and, accordingly, may have conflicts of interest in pursuing business opportunities
5. 43Provisions in our charter documents or Delaware law, as well as Mr. Zalupski’s beneficial ownership of all of our outstanding Class B common stock, could discourage acquisition bids or merger proposals, which may adversely affect the market price of our Class A common stock
6. 44We are a “controlled company” within the meaning of the New York Stock Exchange rules, which allows us to rely on exemptions from certain corporate governance requirements
7. 45The dual class structure of our common stock may adversely affect the trading market for our Class A common stock
8. 46We have not declared or paid cash dividends on our Class A common stock and we cannot assure that cash dividends will be paid
9. 47If securities or industry analysts do not continue to publish research or reports about our business, they adversely change their recommendations regarding our Class A common stock or our operating results do not meet their expectations, our stock price could decline
10. 48Our share buyback program that was approved by the Board in June 2023 could affect our stock price and increase its volatility, and may reduce the market liquidity for our stock. The share buyback program may also materially impact the Company’s liquidity
11. 49Our Class A and B common stock rank junior to our redeemable preferred stock with respect to dividends and amounts payable in the event of our liquidation, dissolution or winding-up of our affairs
12. 50Shares of our redeemable preferred stock are convertible into shares of our Class A common stock in certain circumstances and, upon conversion, will dilute common stock shareholders’ percentage of ownership
13. 51Certain rights of the holders of the redeemable preferred stock could delay or prevent an otherwise beneficial takeover or takeover attempt of us
14. 52Information system failures, cyber incidents or breaches in security could adversely affect us
15. 53Competitors or other entities may integrate AI into their information systems and business operations more swiftly or effectively than us, potentially impairing our competitive edge and negatively impacting our financial performance
16. 54Our business is subject to complex and evolving U.S. laws and regulations regarding privacy and data protection
17. 55Increasing attention to environmental, social and governance matters may impact our business, financial results or stock price
18. 56Negative publicity could adversely affect our reputation as well as our business, financial results and stock price
19. 57Global economic and political instability and conflicts could adversely affect our business, financial condition or results of operations
20. 58Our business could be materially and adversely disrupted by an epidemic or pandemic, or similar public threat, or fear of such an event, and the measures that federal, state and local governments and other authorities implement to address it
21. 59Any future government shutdowns or slowdowns may materially adversely affect our business or financial results
22. 60Cautionary Statement about Forward-Looking Statements and Risk Factor Summary